Operator: Welcome to the Enea Q3 Presentation 2026. During the questions-and-answers session, participants are able to ask questions by dialing #5 on their telephone keypad. Now I will hand the conference over to the CEO, Teemu Salmi, and CFO Ulf Stigberg. Please go ahead.
Teemu Salmi: Good morning everyone from Stockholm. Here is Teemu Salmi speaking, and in the room as well, I have the CFO of Enea, Ulf Stigberg. We will take you through the Q3 earnings call this morning, and it will be more or less the usual way as it has been the past quarters. We will do a high-level summary of Q3 and do a deep dive into our financial results, then at the end, talk about our way forward and outlook. We will get straight into it and look at the takeaways from Q3. Let us start with the disappointments. I am not happy at all with the situation where we are today, where we, in the short term, have had headwinds when it comes to our net sales development, where we in the quarter are reporting a 4.8% decline in our net sales.
Teemu Salmi: The most imminent reasons for that are twofold. First of all, we have the volatility and the war in the Middle East that is creating uncertainty in time to close our deals in that region. We see a delay with customer decision-making in the Middle East that has an impact on our earnings. The second thing we see as well is that the increased price of memory and hardware in general on the market is leading to also that longer decision time making on our customer side. Now, having said this, we do not see a necessary loss of business, but we see that the decision-taking time is longer than usual. Our sales cycles are becoming a bit longer than they have been in the past. Good things about the quarter is that our strong operational cash flow continues.
Teemu Salmi: We have had a very strong focus on that, and I am happy to see that pay off. For the second consecutive quarter, we are showing very strong operational cash flow, and that in turn has made the board to have an intention to start a share buyback program with a value of SEK 20 million under the grants given by the annual general meeting earlier on year. If we continue to look a little bit more about the market and business development in the quarter, as I said, we have the decline in Q3, from a net sales perspective. Good things is that we continue to sign new customers. We have 8 new customers signed in the quarter, whereof 7 are in our growth portfolio. So definitely we have the traction in the growth portfolio that we want.
Teemu Salmi: We unfortunately see a little bit of faster decline in parts of our Classic portfolio that we did not foresee earlier on in the year. We will come back to the details when Ulf takes us through the results on that level. We are working with strengthening partnerships to becoming stronger and more relevant. And we will see more of that coming in the future of Enea as well. In the quarter, we reported a partnership with FoxIO. FoxIO is a company that develops fingerprinting, and it strengthens our offering, our DPI offering, by integrating the fingerprints from FoxIO into our Qosmos ixEngine. This will make our world-class DPI even better and our offering to the market even stronger.
Teemu Salmi: Our customers, they will be able to get the faster threat detection, even greater visibility than we have today, and stronger support for zero trust and our AI-driven security tool development. That is good. We will see more partnerships coming in the future as well, and I will come back to that in later earnings calls as well. Finally, I would like to also say that our strategy execution, it is on track. We launched that in November last year, where we have three major focus areas. We call them market acceleration, we call them offering evolution, and we call them vertical expansion. In the market acceleration, which is mainly focused on strengthening our sales organization, I am happy to say that we are more or less there. We still have a very few activities to do there to strengthen our sales organization.
Teemu Salmi: In the offering evolution, we see continued good traction in the government space and in the defense space, and I would say in the public security domain in general. Offering evolution, I am going to talk a little bit about the next slide and what we are doing now, in particular with artificial intelligence that is taking our portfolio forward in the right direction. We said from the beginning, when it comes to launching our strategy for 2026 to 2028, that 2026 will be a year of investment, and that we will not see the imminent growth in the year of 2026, but it will accelerate from 2027 and 2028 onwards. That is what we said from the beginning, and that is what we also see happening right now.
Teemu Salmi: So if you look at the rolling 12 months, for instance, on net sales development, we do have an FX-adjusted growth of 2% for the company. We are kind of on track what we promised on the short term for 2026. Acceleration will start next year. Coming back to our product and our offering and also what we in general do with artificial intelligence within Enea, I want to start by saying that we have been working years already with artificial intelligence, so this is nothing new for us. We are taking now the next steps in that journey, I would say. We already have several AI offerings in our products, both on automation and augmentation. Of course, working with data like we do in real-time, handling gigabytes, terabytes, petabytes of data in real-time, it is impossible to do manually by human.
Teemu Salmi: We already have a lot of augmented and automated AI-driven processes and solutions and capabilities in our tools. We will continue to develop that. One good example of that is that our next firewall release that will come, firewall release 11, a majority part of that release will be AI-driven capabilities that we will deliver to the market and our customers. We will see a bigger proportion of all our solution having AI capabilities as part of the releases moving ahead. We have already worked many years with development and troubleshooting based on AI, and obviously there we have been able to take our troubleshooting from days to minutes with the help of AI-driven tools.
Teemu Salmi: We have also now as a next step, what we are now doing is that we are investing in an AI Center of Excellence. I just want to say that this AI Center of Excellence is not a theoretical center of excellence. It is a very practical center of excellence, where we dedicate a few people with good AI capabilities to strengthen our product development teams. So bringing AI capabilities and bringing the learnings from our different product areas to other product areas, so we can actually accelerate and be even faster to market with AI capabilities, and also ensure that we stay ahead as a leading AI-driven security company as we are. Then finally, before I hand over to Ulf, coming back to the key numbers of the quarter, we have net sales reported of SEK 202 million, which is a drop of 4.8% year over year.
Teemu Salmi: We have a margin of 23% in the quarter. Good thing is that our operating cash flow is actually putting our leverage in a much better position. We have been able to lower our net debt. So it has been coming down now significantly over the past 12 months. We report an EPS of SEK 0.35, and like I said, operating cash flow of SEK 66 million in the quarter continues to be strong. The R&D investment, obviously in relation to the net sales, it looks high here. We have not increased our investment in R&D, but it is just the fact that the relation between cost in R&D and our net sales reported in the quarter makes that number look a little bit high.
Teemu Salmi: If you look at the year-to-date numbers to the right, you can see that it is in the vicinity where we expect it to be 25%-26% of our turnover. On the year, we report SEK 643 million in sales, which is pretty much on par with last year. We have a strong cash position of SEK 108 million. With that, I will leave over the details of our financials to Ulf. Ulf, please.
Ulf Stigberg: Thank you, Timo. Enea reports net sales of SEK 202 million for the quarter, which is roughly a 5% decline. With currency adjustments, we are reporting a -6% decline, and over the last 12 months, we can see a 2% growth with currency-adjusted figures. We are reporting a 23% adjusted EBITDA for the quarter, corresponding to SEK 47.3 million, compared to SEK 70.3 million for the quarter last year. The reason for the decline in the EBITDA margin, as we can see in the graph to the left, is first of all, we have SEK 10 or SEK 11 million decline in net sales, and we have some increased costs that affect our result. The cost includes annual salary review, some direct costs related to project deliveries, and also related to the long-term incentive program that was decided on the AGM earlier this year.
Ulf Stigberg: Finally, we are in the plan, planning for increased cost, taking us to the growth plan in the strategy execution. Of course, we can see the same effect with increased cost and a little bit the decline of the net sales affecting our EBIT margin. So we are reporting a 6% adjusted EBIT margin corresponding to SEK 11.4 million, compared to SEK 31.8 million a year ago. This reports down to EPS of SEK 0.34 for the quarter compared to SEK 1.77 for Q3 last year. If we look into our portfolios, we can see that we have a good trend in our growth portfolio. If we compare the year-to-date net sales figures compared to the previous years, all three areas are increasing in net sales, whilst the Classic portfolio is declining.
Ulf Stigberg: In the Operating Systems, this is according to plan, and Network Access Control is a little bit behind in the sales for this year. If we get into the details, we can see that year to date, we have a growth of 5% in the growth portfolio. With adjusted for FX, it is 9% growth for the last nine months. In the Classic portfolio, we can see that Network Access Control is a little bit behind, as I said, with -16% growth compared to previous year. The Operating System reports a -20%, which is according to plan. The headwind is, as we discussed earlier here, related to the delays in the closing of the deals, related to the war in the Gulf, but also in the relation to the memory cost developments. Finally, we see an improved cash flow and improved net debt positions.
Ulf Stigberg: In the quarter, we report SEK 66 million operational cash flow, compared to SEK 20 million Q3 last year. This results in a net debt improvement of SEK 163 million in the balance for Q3 of this year. Compared to a year ago, we were at SEK 211.9 million. So we have lowered our leverage and continued to keep our cash position. Equity ratio for the quarter, 71.3% and net debt and EBITDA ratio, 0.66.
Teemu Salmi: Thank you, Ulf. Then we will go into the summary and we will get ready for the questions at the end of this presentation. Just a short recap of what we said from the beginning. We see short-term headwinds, which is causing the decline in the quarter, even though despite that, we see an FX-adjusted growth in the rolling 12 months. We are continuing to have a strong operational cash flow and the highlight and the focus on that will continue, obviously, into the end of the year and into 2027. The board of directors have the intention to start a share buyback program with a value of SEK 20 million here in the Q4. We will come back to more details about that once that will be ready to be released. On the short-term outlook, we have one quarter left of this year.
Teemu Salmi: We leave our guidance unchanged. The market actually, despite the fact, despite the short-term headwinds and issues that we are reporting, we see a stable to moderately positive market for our products and solutions and offerings. The Middle East situation, I have already commented. The memory prices, I already commented. What I have not commented is that we actually have a solid and growing pipeline, which is supporting our strategic ambition. We are not happy with the short-term results of Q3, but we are fully focused on delivering a stronger and better Q4. Our long-term financial ambition stays the same. No changes to that. As I said earlier in the call, 2026 has been and was always intended to be an investment year for our strategy cycle, where we will see the acceleration of our business development coming throughout 2027, 2028, and beyond.
Teemu Salmi: Our profitability ambitions have not changed on the long-term financial ambition. Finally, before we get over to questions and answers, I would like to take the opportunity after now 13 delivered quarterly reports. Thank you, Ulf, for his dedication and great work and contribution to Enea as the CFO. I also want to wish Ulf all the best and good luck for the next endeavors in his life.
Ulf Stigberg: Thank you.
Teemu Salmi: Ulf will be with us all the way until December this year, but you will not hear Ulf in any earnings calls moving ahead. At the same time, I would like to take the opportunity to welcome our incoming CFO, Sophie Reinius. Sophie is joining us only in a few days. Sophie comes with a very good and relevant background for us in Enea. She has been working in the tech and software business as CFO and also as an acting CEO at Formpipe now during their restructuring times. I am very happy to have Sophie on board, and as of next earnings calls, you will hear her together with me in these calls. Thank you, Ulf, and very welcome, Sophie, to you as well. With that, I think it is time to go over to question sessions. Operator.
Operator: If you wish to ask a question, please dial #5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial #6 on your telephone keypad. The next question comes from Rasmus Jacobsen from Redeye. Please go ahead.
Rasmus Jacobsson: Good morning, gentlemen. I am a bit curious if you could maybe start with the delayed decision-making and how that has developed over the year. I think in Q1 you said you had a certain amount of deals slipped, and then in Q2 you had a slightly smaller amount. Could you perhaps quantify the deals you see slipping here in Q3, please?
Teemu Salmi: Thank you, Rasmus. Yes. With uncertainty comes unpredictability, right? I think that that's what we're facing. I think the uncertainty and unpredictability starts with our customers and the reality that they live and work in every day. The uncertainty comes from war and what happens in different countries, right? I think the ambition with us and our customers have been aligned and the same, but then other things happen that gets priority, right? For good reasons, I think. Priority shift to safeguarding family, country, life, and business gets pushed into the future, right? If I would try to quantify the pushout of business that we were expecting to close in the last quarter but did not happen, I would say it's a double-digit million SEK number. So it's significant that we had in the plan.
Teemu Salmi: The good thing about that business is that it's not lost, right? We keep on pushing it ahead. If I would say it's three, four deals that compromises that push out, we're in the closing stage in two of them already now in early Q4. So it has an impact short term because Enea's, our business profile looks like it does. Our volume of business is not high, so if one deal slips from one quarter to another, it has an impact on the existing quarter. But that's as far as I can go on answering that question, Rasmus. I hope it helps.
Rasmus Jacobsson: Thank you very much. Are these the same deals that you had earlier in the year, or the earlier deals have been closed and these are new slippages, if that makes sense?
Teemu Salmi: It's a mix.
Rasmus Jacobsson: All right. In the CEO letter, I think you write that you are focused on improving conversion and speed up decision-making and so on. Can you go on a bit more detail what you are planning on doing to improve the conversion and decision-making? Thank you.
Teemu Salmi: First of all, I think I ended up the call with saying that we have a strong pipeline, and I solidly and honestly think that we do. One thing I can say about our pipeline is that the geographical split for Q4 looks a bit different than it has done from earlier quarters, where we have been on our new business a bit more skewed towards Middle East and Africa. Now in Q4, we have a pipeline that looks a bit more geographically better spread as well. Of course, if you spread the pipeline geographically differently, you have also a little bit less volatility and uncertainty as well. Having said that, we still have a quarter to close. Nothing is ready until the ink is on the paper. But we definitely have a plan for how to make a better Q4.
Rasmus Jacobsson: All right. Thank you very much. I think that is all the questions for me, and thank you, Ulf, and good luck in the future.
Ulf Stigberg: Thank you.
Operator: As a reminder, if you wish to ask a question, please dial pound key 5 on your telephone keypad.
Teemu Salmi: Okay, if there are no questions on the voice call, I will go over to some written questions. We have one first written question here. Why not bigger share buybacks? You have annual free cash flow of SEK 200 million. Yes, first of all, I think it is a bit of a decision and discussion to be taken with our board. I think personally right now, I think it is a good starting point. I think it is good that we start, first of all, to buy back our shares. We also are in an investment mode as part of our strategy. We also want to make sure that we have cash available for that. I think that the SEK 20 million judgment and the discussion that we have had with the board, I think it is reasonable where we stand right now, and let us see what happens for the future.
Teemu Salmi: It is a well-balanced decision, I would say. If you take into consideration our strategy execution, our financial performance, and also the operational cash flow that we are generating. Personally, I think a bit more secure and safe way forward is the right thing instead of being aggressive. Second question, how credible are your 2026 goals of annual average +10% sales growth in the light of negative growth and recurring disappointments last 12 months? First of all, 2026 isolated, we have never talked about the 10% sales growth. Our short term guidance for 2026 has always been single-digit growth with an adjusted EBITDA of 30% and above. That is the growth of 2026. When it comes to the three-year strategy period of 2027 and 2028, we stand firm on our belief there. Like I said, we have a strong, solid pipeline that is growing.
Teemu Salmi: The deal sizes that we look for the future look a bit different than they look like today. We have more significant opportunities as well. So we stand firm and believe in the path forward to executing on our 2026 to 2028 strategy as of now. Obviously, if that would change, if we would get a new view on that situation, we would come back and communicate that as we are obliged to do. Operator-
Operator: There are no more questions at this time.
Teemu Salmi: Yeah.
Operator: I hand the conference back to the speakers for any closing comments.
Teemu Salmi: Thank you, operator. Thank you everyone for joining the call, and I wish you all a good day. By that, I say that we close the earnings call for Enea Q3 2026. Thank you.
Ulf Stigberg: Thank you.
Operator: The host has ended this call. Goodbye.
